TORONTO (Reuters) – Bankrupt telecom equipment maker Nortel Networks (NRTLQ.PK), once one of the world’s biggest technology companies, said on Monday it has reached an agreement to sell its enterprise solutions unit, and was advancing in talks to sell its other businesses.
Toronto-based Nortel, which is North America’s biggest maker of telephone equipment but has been in steady decline for much of the past decade, said the “stalking horse” agreement with Avaya Inc set a purchase price of $475 million for the business, which makes networks and gear for large corporate clients.
Stalking horse deals are designed to test the market, typically setting the floor for bidding, and make up the lead bid at a bankruptcy auction. Last month, Nortel announced a similar proposal to sell its CDMA and LTE wireless technology businesses to Nokia Siemens Networks for $650 million.
Nortel is still looking for serious bidders for its Metro Ethernet Networks unit, which makes Internet infrastructure and includes its optical and carrier ethernet technology.
The company said the proposed asset sale to Avaya would include all of the assets of the enterprise solutions business, as well as the shares of Nortel Government Solutions Inc and DiamondWare Ltd.
“We certainly believe there are a number of other interested parties that will take advantage of the stalking horse process to come in and bid for these assets,” Nortel President and Chief Executive Mike Zafirovski said in an interview with Reuters.
Avaya Inc specializes in VoIP equipment and services, which help business customers make phone calls over Web-based networks. The company was bought out by private equity firm Silver Lake, along with TPG Capital, in October 2007.
Analysts said the proposed deal is good news for both the industry and Avaya as it boosts Avaya to the top spot in the expanding voice over Internet protocol (VoIP) market.
“This new market share helps Avaya tremendously as it has been able to convert its own customer base to VoIP but had trouble acquiring new customers,” said Yankee Group analyst Zeus Kerravala.
“Avaya has emerged as the clear No. 1 vendor in enterprise voice, trumping Cisco, who’s now No. 2,” he added.
Nortel will file the stalking horse asset and share sale agreement with the U.S. Bankruptcy Court for the District of Delaware, along with a motion seeking the establishment of bidding procedures for an auction that allows other qualified bidders to submit higher or otherwise better offers, the company said.
The U.S. Bankruptcy Court for the District of Delaware is expected to rule on the final outcome of the CDMA and LTE asset sale process early next week.
Nortel said the deal with Avaya will require regulatory approvals in the United States, Canada and other countries. Cleary Gottlieb Steen & Hamilton LLP is representing Nortel Networks in the sale of its global Enterprise Solutions business.
In a separate statement, Avaya said it expected hearings before courts to approve bidding procedures to be held within the next couple of weeks, followed by an auction.
Private equity firm MatlinPatterson, which is also a major Nortel creditor, has expressed interest in acquiring and reorganizing some of Nortel’s assets. MatlinPatterson has said it is open to working with strategic partners in its bid to acquire Nortel assets.
Several analysts have said that a reorganization of Nortel would only be successful if it involved a tie-up with a strategic player as scale is essential for a company to succeed in this sector.
The industry has seen a great deal of consolidation, some of the major players that currently dominate include Ericsson (ERICb.ST), Huawei [HWT.UL], Nokia Siemens, Alcatel-Lucent (ALUA.PA), Cisco (CSCO.O) and Avaya.
(Reporting by Pav Jordan; editing by Peter Galloway)
peHUB Note: Avaya is a portfolio company of Silver Lake Partners and TPG Capital.